Company is a commercial business in which people work together in order to run that particular business. Managing or running a company is not a one man job, there are various peoples involved in the same one of such being the shareholders. Shareholder is an individual or a group of individuals that buy the stock of the company as a method of providing it with the capital. Amongst the man people involved in the company, shareholders hold an important role as they provide with the share capital and it makes them a member of the corporation. With reference to the percentage of shares held by one he is considered as the owner of that of the shares of the company. Shareholder is different from the corporation as they are not held to be absolutely liable for the debts of the corporation but to some extend there exists a liability. Legally one is not a shareholder until and unless the share is brought in and their name is registered as the shareholder of the company. As these individuals or institutions being referred to as shareholders invest their money in the shares they are members of the corporation, therefore making them entitles to certain rights in the company. Since everything nowadays is governed by law so is this provision providing rights to the shareholders. There are various rights that a shareholder enjoys under the Companies Act. Before talking about the shareholders rights one should know the kind of security they have invested in.
There is a hierarchical structure of rights that are embodies in the company which accompany the three main types of securities that the company issues. Those are Bonds & Debenture, Preferred Shares and Common Shares. Common shares are the ones which yield the most to the company but are also at the bottom of the chain. Debentures and Preferred Shareholders get more preference when the company is dissolved over the liquidation matters. Although there are certain drawbacks of being common shareholders but when there is profit to the business these shareholders earn their part too. Being a part owner of the company these shareholders enjoy certain rights also. These rights have been provided to protect the interests of the shareholders.
Shareholders since are the part owners of the company i.e. to the extent of the percentage of shares they hold, they have the right to vote. This vote is guaranteed to the shareholders as a benefit to them since they can vote regarding the major decisions which the company might have to take in order to run its business. Right to vote also includes right to elect directors in the Board of Directors. This is an essential right as the person who has the shares of the same company would want the best for the company with a personal gain and therefore it would lead to wise decision though a valid method of voting. This entitles the shareholders to vote in cases of fundamental changes that the company may go through like that of mergers or acquisitions.
As mentioned above in events of corporate liquidation Bondholder and Preferred Shareholders are paid first, whereas when the business earns profits the shareholders have a claim on something valuable i.e. their ownership. Their claim on portion of the assets benefit them, as the corporation earns profits from its assets it re-invests in more assets leading to increased value in the market name of the corporation, which in-turn increases the value of that particular company’s stocks making that company more profitable in the market itself. Further this increased value of the share brings us to the next right which is enjoyed by the shareholders, which is of transferring the shares. This right is vested with the shareholder as they make profits by the same. Once a market value of a stock is increased due to the profits earned the Shareholders sell their shares and this leads to the amount on which sales made minus the amount at which it was purchased, making a profit. Apart from the profit the liquidity provided by stock exchange is a beneficial act which helps the Shareholders to cash-out the same. Also for people interested in the company activities and having a voting right in the company, the transfer makes it easy to be the owner of the shares and accomplish the same. Times when the company earns profits and decides not to re-invest but to give the profits to the shareholders, the shareholders are entitles to get their amount. Though the percentage of profit to be given out to the people in the form of dividends is decided by the Board of Directors but a shareholder is entitled to that dividend. All these add value to the shares.
With all the rights against the profits the shareholders also acquire the rights to inspect the corporate books and records of the company. Public Limited Company are required to submit their annual reports already but for the private companies it is a game changer.
Therefore the aforementioned are the few rights provided by the government. Also with all these every company has a particular set of rights but these are the most essential ones to be kept in mind.
Author: This blog is written by Ms. Anmol Srivastava, a passionate blogger & intern at Aapka Consultant.
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